International businesses are subject to certain financial and political risks that most domestic businesses will never even have to consider. Foreign currency exchange rates, political climates and events, international trade laws and tariffs, and an array of unexpected variables must all be accounted for prior to the first day of business.

Logistical Risk

When purchasing goods and materials necessary to the operation of your overseas business, there may be uncertainty about the supplier's ability to deliver on time and within the budget. One way to mitigate this risk is to diversify your supply chain by spreading orders over several suppliers. Consider taking this method a step further by using suppliers that are distributed across several nations or regions to reduce the risk of unforeseen problems, such as issues with weather. This method may work best for large companies that have the resources and personnel to handle the detailed work and scouting involved. Small businesses may be able to use a similar approach, however, by having a system of fail-safe measures that include having a backup supplier for every existing supplier.

Regulatory Risk

Environmental regulations have become increasingly significant to international companies in recent years. They can affect the expense of operation and expansion by prioritizing the health of the planet over the bottom line. Many countries around the world have higher environmental standards than the United States and thus are less friendly to certain industries. Respecting local attitudes regarding the environment can help an international expansion go more smoothly. Local regulations, for example, pertaining to filing documents, obtaining permits and registering businesses, can also be difficult to navigate. The most effective and ultimately least costly way to cut through red tape is with the help of a local business lawyer or accountant.

Financial Risk

At one time, the U.S. dollar was king and traded favorably against all other currencies as the global reserve currency. In recent years, the dollar has lost some of its ground to other currencies. If you own a U.S. company engaging in business overseas, the risk and expense involved in converting dollars to the local currency may fall on your shoulders where it once did not, as can fluctuations in conversion rates. Consider banking with an institution that has branches and a business presence both in the United States and in the country where your business will do business. Inquire with the bank whether it is able to manage ForEx trading and conversions, and make sure you are confident in its knowledge of the local country. Present your concerns at the start to avoid future issues.

Political Risk

Political risks for international businesses include nationalization and the seizure of assets, war and terrorism, and the failure of local authorities to enforce contracts in the region. Any of these issues can mean big problems and big expenses for your business. Investigate the business dealings, approach, successes and failures of companies that have gone before you to find out what works and what doesn't in a given area and where you need to take extra precautions. Consider working with the MIGA (Multilateral Investment Guarantee Agency) when undertaking overseas investment. This World Bank agency has a team of experts who will create an insurance policy customized to your needs and requirements in hopes of promoting growth in politically turbulent areas.

About the Author

Robert Morello has an extensive travel, marketing and business background. He graduated with a Bachelor of Arts from Columbia University in 2002 and has worked in travel as a guide, corporate senior marketing and product manager and travel consultant/expert. Morello is a professional writer and adjunct professor of travel and tourism.

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Morello, Robert. "Strategies That Mitigate International Business Risks." Small Business - Chron.com, http://smallbusiness.chron.com/strategies-mitigate-international-business-risks-43016.html. Accessed 14 September 2019.

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